Fitch Ratings has changed its outlook for SJM Holdings from negative to stable and expects the company to achieve positive free cash flow (FCF) in 2024.

The positive FCF should help SJM expand while “leading to a reduction in the debt balance.” Fitch expects SJM to achieve EBITDA of HK$6.6 billion (£664.5 million/€770.9 million/US$845.3 million) by 2026. The agency points to Macau’s continued growth in terms of visitor numbers and gaming revenue – both reasons for this to be positive for SJM.

Fitch warned that SJM’s ratings were constrained by “high leverage” caused by debt accumulated by the impact of the Covid-19 pandemic as well as heavy investments in the integrated Grand Lisboa Palace Resort in Macau.

SJM’s ratings were also restricted due to potential regulatory issues in Macau and beyond. It also cited further difficulties in the Chinese economy and the risk posed by the Grand Lisboa Palace’s expanded expansion in a competitive Macau market.

2023: a much-needed positive year for SJM

After a disappointing end to 2022, which saw SJM close seven casinos in December, the operator bounced back with a strong 2023 as Covid-19 restrictions were finally eased in Macau.

In the first half of 2023, SJM recorded positive EBITDA in six months for the first time since 2019. Total revenue also increased by 126.7% to HK$9.36 billion in the first six months of 2023 compared to the first half of 2022.

This pandemic recovery continued in the third quarter, with SJM reporting a 492.9% increase in net gaming revenue, generating HK$5.41 billion. Gross gaming revenue also rose 502% to HK$5.73 billion.

SJM was not the only operator to benefit from the easing of pandemic restrictions. Melco Resorts & Entertainment reported a 320.6% jump in third-quarter revenue to $1.02 billion. Casino revenue, meanwhile, rose 346.2% to $812.1 million.

Macau is thriving despite China’s difficulties

Macau’s gaming sector enjoyed another stellar month in December, reaching gross monthly income of MOP18.6 billion (£1.8 billion/€2.1 billion/$2.3 billion). This is an increase of 433% compared to the previous year.

This strong result came despite China, which holds sovereignty over Macau, continuing to underperform. Sales of lottery tickets in China fell 2.5% year-on-year in November, while sales of sports lotteries also fell 13.3% compared to the same month last year.

Meanwhile, gross gambling revenue in Macau in December was 15.7% higher than the MOP16 billion recorded in the region in November.

Macau’s cumulative gross income for 2023 now stands at MOP183.1 billion, 333.8% higher than the MOP42.2 billion accumulated for all of 2022.